The number of U.S. workers filing new claims for jobless aid shot up last week with its biggest increase in nine months, raising expectations the Federal Reserve will further reduce interest rates to stimulate the economy.

However, a broad-based gauge of economic activity pointed to slow but steady growth, according to separate reports issued on Thursday.

The Labor Department said new claims for unemployment aid climbed by 28,000 last week, much more than anticipated and the biggest increase for any week since February.

A later report from the Conference Board in New York showing its Index of Leading Economic Indicators rose a modest 0.3 percent in September after declining 0.8 percent in August, offering some reassurance about future prospects.

"While the financial markets gyrated and the slump in housing intensified, the economy continued to perform at a slow but steady pace," said Ken Goldstein, a Conference Board economist. He said odds were that "this slow pace of economic activity could continue into the early months of 2008."

Seven of 10 separate measures of economic activity that comprise the leading index strengthened in September, including stock prices, offsetting the drag from a decline in building permits, wider interest-rate spreads and a flat level of weekly manufacturing hours.

The Labor Department said initial claims for state unemployment insurance benefits totaled 337,000 in the week ended October 13 following an upwardly revised 309,000 in the prior week.

Economists surveyed by Reuters had forecast a much lower total of 314,000 claims last week.

The data covers the week that coincides with the government's monthly survey of employers, which is part of the Labor Department's closely watched monthly employment report. The next one will be issued on November 2.

While the weekly claims figures are volatile and are frequently revised, the latest numbers add to other signs of a slowing economic pace, including reduced starts on new homes.

Prices for U.S. Treasury securities strengthened as investors bet it increased chances for a rate cut but stock prices were modestly lower.

With reports of layoffs in businesses from Wall Street to the manufacturing floor, analysts said it was not surprising that official statistics were starting to show that job opportunities were coming under strain.

"It seems to be finally showing up," said Keith Hembre, chief economist for FAF Advisors in Minneapolis. "Everything else has been pointing to a softer job market. Maybe this is finally a sign that it's catching up with the other labor indicators."

Robert Macintosh, chief economist for Eaton Vance Management in Boston, said the claims data was "more fuel for the Fed to make another cut" in interest rates when policy-makers meet at the end of this month.

Labor Department officials said no special factors were involved in last week's surge in claims but said some seasonal volatility might have affected the statistics. The last time there was a larger weekly increase in new claims filed was in the week ended February 10 when that figure soared by 42,000.

The number of so-called continuing claims rose to 2.53 million from 2.52 million in the week ended October 6, the latest period for which figures were available. The continuing claims total was in line with economists' forecasts.

The impact of a slumping U.S. housing sector began to show up clearly as widespread layoffs were reported in construction industries for the week ended October 6.

The slumping housing sector likely accounted for many of the layoffs as builders trimmed back their plans in the face of a subprime mortgage crisis that has resulted in rising foreclosures and reduced sales. The government also noted layoffs in the automobile and manufacturing industries.

California alone reported more than 6,000 new claims in that week, and the department cited layoffs in construction, service, finance, insurance and real estate industries.

Unemployment